Become Financially independent in 2023 with these step-by-step tips. In general, Becoming financially independent has been a topic of discussion for decades. However, nowadays it continues to become increasingly popular. The reason is that more and more folks realize the importance of achieving financial freedom.
Everyone wants to live their dream life, but most fail because of a lack of money. No matter what the life of your dream looks like, you will definitely need to be financially secure to make it happen. This is why each individual should aim first at being financially stable. In this article, we will discuss how to become financially independent according to experts.
What Does it Mean to Be Financially Independent
Before we dive into the steps to become financially independent in 2023, let us first understand what financial independence is. This term actually refers to the state where an individual has enough passive income to cover their expenses without needing to work. This implies that they can retire early and work on their own terms.
Back in the day, a financially independent person is someone who doesn’t rely anymore on parents financially. Around the age of 20, young people are expected to be self-sufficient. For older generations, they considered it as retirement. For some people, its definition may vary accordingly.
But, in general, most people agree that financial independence is the ability to live a decent, debt-free life, with a stable income. You are financially secure when you can spend, save and invest your money without worrying or asking other people’s permission.
Thus, you are considered to be financially free when you are financially secure. Despite each person’s different financial goals; when you can cover all your expenses with ease, have a rainy day fund, and have a stable income, that’s it. As long as you live your life fully without money limitations, you’re financially free.
It doesn’t matter how long it takes for you to reach your financial freedom, as it’s your own journey. Besides, it depends on your financial goals. But, the sooner you start, the faster you’ll become financially independent.
Benefits of Being Financially Independent
- Peace of mind and freedom
We often hear this saying “Money doesn’t buy happiness”. Yet, none of us can live without having it no matter what. We all have bills and expenses that are required to be paid (food, electricity, rent, mortgage, etc).
Therefore, it might not buy happiness but it plays a major role in creating a happy, comfortable, and stress-free life. Besides, without money, trouble and depression prevail.
When money isn’t a worry, you can focus on what is most important to you and what you love to do (hobbies, passion).
Working towards your financial freedom is planning for your future. When you retire, you can enjoy an abundant and comfortable life during your golden years.
- Possibility to be your own boss
To become successful in life, you can’t neglect your finance. If you want to achieve your goals fast in life, money is a must-have. As soon as you are financially free, you no longer need to work for a paycheck or trade your time for money. You can choose to work or not.
Most people want to start a business, buy real estate, invest, take a vacation, start a project etc. But money issues are always their prior obstacle. Thus, to be your own boss, get financially free.
Being financially independent has plentiful benefits. It gives you power, freedom, and peace of mind— The power to manage your finance as you want, to make your own decision on your personal finance, and to live your dream life. You will be able to afford the lifestyle you desire and not worry about debts.
These are some of the main benefits of being financially independent. So, it is a crucial aspect of life, and that’s why everyone should strive to attain it. Nevertheless, it won’t happen by accident. It requires a clear and concise combination of financial planning, smart investments, and disciplined spending.
Assess Your Current Financial Situation
Before you start your journey to achieve financial freedom, the first step is to assess your current financial situation. This method is called budgeting. This involves evaluating your income, expenses, debts, and assets.
To do so, start by creating a budget that outlines all your monthly expenses and income. This process is critical, as you need to know exactly where you spend money. If you don’t track correctly your spending, you will easily blow your budget.
When you see clearly where your money is going, then you can make the necessary adjustments. Make a list of all your expenses (rent, electricity, utilities, groceries, healthcare, insurance, transportation, etc). This will help you identify areas where you can cut back all unimportant expenses and increase your savings. Only keep what is absolutely essential.
Create a budget and stick to it to make your financial situation stable. The 50/30/20 budgeting rule is the best to help you out. It implies that you add 50 percent of your after-tax income to your needs (housing and food), 30 percent to your wants (leisure and entertainment), and 20 percent to savings and to repay debts as well.
Become Financially Independent by Setting Financial Goals
After assessing your current financial situation, the next step is to set financial goals. This means identifying your long-term and short-term financial objectives. For instance, you may want to buy a house, save for retirement, pay off debts, etc. When you set clearly your financial goals, you will be able to develop an effective plan to achieve them.
Set SMART goals and for each goal, set a specific timeline to achieve them. For example, what are your financial goals in five years, in three years, in one year, or in six months? Don’t set them too far because that tends to demotivate you.
Keep track of your financial goals. Always assess what you have achieved and what you haven’t. Look closely at each goal and write down what worked and what didn’t. Find a solution to make improvements.
Create an Emergency Fund
Building an emergency fund is an essential step toward financial independence. This will provide a safety net in case of emergency or unexpected expenses (job loss, medical conditions, inflation, crisis, pandemic…).
Experts recommend that you allocate at least six months’ worth of living expenses to an emergency fund. You can start by setting aside a small amount of money each month and gradually increasing the amount as much as you can.
Since you never know what may happen in the future, it’s wise to get ready to remain on the safe side. Imagine that you suddenly lose your job. How are you going to survive? That’s why an emergency fund is a must, it’s your backup.
To Become Financially Independent: Pay Off Debts
Debts can be a significant barrier to becoming financially independent. It can quickly create financial worries if not tackled early on. For example, high-interest debt such as credit card debt can accumulate fast and become a burden.
So, pay off your debts as soon as possible. Start by prioritizing high-interest debts and pay them off first. You can also consider consolidating your debts to a lower interest rate. If you can afford to pay much more than the minimum requirement, it’s also advisable.
Many people struggle with their life, mainly to be financially independent due to huge debts. So, before it becomes a headache, make sure to pay down your debt each month.
Live Below Your Means to Become Financially Independent
We always hear never spend more than you earn, but it is even more crucial to live below your means. This is a key aspect of financial independence.
To live below your means doesn’t mean sacrificing everything and living miserably. It simply refers to avoiding unnecessary expenses, such as buying nice-to-have stuff rather than must-to-haves.
Spending money excessively and without counting may lead you to financial burdens—so be cautious about it. Be frugal when needed and adopt minimalist habits to really spend on what really matters. Use a spending tracker daily to see clearly your expenses.
Do you really need 20 pairs of shoes? Too many clothes and stuff will just overwhelm you and clutter your home. Buy only the best quality outfits and items you really need—Less is more. Stop impulsive buying and use a buying planner each month. Make use of deals, discounts, and freebies.
Declutter your home and keep yourself well-organized. You can sell stuff you don’t need to save more money. When you save money, you take one more step closer to your financial freedom. Conversely, when you spend money, you take one step backward—be mindful of your expenses.
Focus on your financial goals and buy only what you need rather than what you want. Even if you have the money, don’t just blow it away. Always make sure to add it to your savings bucket or investment.
Increase Your Income
One of the major keys, in order to become financially independent, is to increase your income. Financial experts, millionaires, and billionaires will always recommend you to have multiple sources of income, mainly passive income.
There are two different types of income: active and passive. Your day-to-day job is an active income. Active income requires your presence constantly and makes you trade your time for money. You live from paycheck to paycheck.
Passive income instead is scalable and doesn’t require much of your time. With passive income, you no longer trade your time for money. Nowadays, there are unlimited ways to earn passive income online or offline to increase your income.
Moreover, if you are still working a 9 to 5 job it doesn’t matter. There’s no need to quit your job if it satisfies you, makes you feel happy, and supports your lifestyle. Lots of people are making 7 figures working on their day job. It is essential to have a reliable income source.
In case you have a high-paying job, save as much as you can and start your investment as soon as possible. The best day to invest was yesterday, but the second best day is today. Remember that it’s never too early to invest in your future. Otherwise, why not ask for a raise at work? You can also start a side hustle like freelancing. Take some time on the weekend or each day and just start.
To earn more money, why not ask for a raise at work? You can also upgrade your skills and apply for a higher position in your department or in another company. Take a part-time job or learn how to start a side hustle and start your business as soon as possible. Investing in a rental property is another great idea.
Save and Invest
Saving is vital to become financially independent. Don’t rush into spending your paycheck when you receive it, save first. Pay yourself first, save, and spend what is left. As Warren Buffet says “Do not save what is left after spending, but spend what is left after saving.”
Nonetheless, saving alone is not enough. The second huge part is to invest. Know that money loses value over time. So, it’s a bad idea to save and keep it in your bank account. What you should do instead is save it and invest it. Make your money work for you by investing it.
Learn to invest as soon as possible, and learn to build good credit. You certainly have heard “don’t keep all your eggs in one basket”. This is absolutely true and life-saving as you never know what may happen. If you rely on only one source of income, you will certainly fall into financial trouble. Diversify your investment.
To achieve financial freedom, you must save and invest as much as you can. Save a portion of your income each month towards your financial goals. But before you choose where to invest your hard-earned money, consult a financial advisor. Never go blindly and risk your money on something you’re not experienced with. Always seek experts before investing.
The best investment you can make is to invest in yourself. It means in your education. Continue to upgrade your skills. Never stop learning and acquiring new high-income skills to achieve your goals fast. Take courses to improve yourself and your business. The more skilled you are, the more money you will make. Additionally, invest in products that add value to your life and that can generate income.
Become Financially Literate
Financial literacy is not taught at school which is unfortunate. Yet, you need to learn about it and master it to become financially independent.
Financial illiteracy is a huge problem for many. This is one of the main reasons why the rich get richer and the poor get poorer. As reported by Oxfam “ wealth of richest 1% equal to other 99%”.
Everyone on this planet knows how to earn their living but few know how to make money work for themselves. If you know exactly the rule of money and how it works, it will be easier for you to multiply it.
Starting from today, prioritize your financial education. Read books, financial magazines, and newsletters that teach about money, business, and taxes. Take financial courses online, learn about stock markets, personal finance, and so on.
Get financially educated so that money won’t be a secret for you anymore. Thus, you will be forever free from financial trouble. Your future will be secure and financial worries will be a thing of the past. You can pass it to the next generations, and why not share and teach others to do the same to protect their future too?
Learn to Manage Risk
Risk management is another factor that you need to take into consideration. Though, everything takes risks — take calculated risks only. Don’t just jump blindly into the unknown.
When you invest or start a new business, do your research first. Do your due diligence and understand how your market works. Study the business to know what risks are involved. This way, you can take smart, wise, and informed decisions.
Get clear on your project to better anticipate the possible issue. Then, plan a solution or strategies to face it. You can’t ignore risk management, otherwise, you are going straight to the wall.
Invest in Your Health and Well-being
Health is wealth. Take care of your health and well-being as it is your most valuable asset and possession.
A healthy person has a hundred wishes, but a sick person has one. A.G. Riddle
When you are sick, financial freedom will be out of your reach. You won’t be able to use your full potential to work towards your goal. Plus, healthcare is expensive. So, consider adopting a healthy lifestyle.
Eat healthy and nutritious food, not junk and processed ones.
Hydrate your body by drinking at least 2L of water per day.
Sleep early and get up early — have 8 hours of sleep
Exercise and practice meditation to fight anxiety and stress.
Final Thoughts:
Becoming financially independent requires discipline, determination, patience, and mostly a clear plan and strategy. Make your financial goals realistic and measurable to stay motivated.
Work consistently to achieve them and adopt effective money habits. It’s also important to remember that achieving financial freedom requires hard work and it can take time but it’s worth it.
With a clear plan and consistent effort, you can become financially free and live your dream life.
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